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Surprises in CEO Succession

By Daniel Fairley, J.D. and David A. Bjork, Ph.D.

One of the biggest disasters that can aect any business is a disability aecting the CEO.

Daniel Fairley

o one had even thought about the possibility of partial disability when they developed a succession plan for the CEO. So when CEO Andy Brody recovered from a stroke but didn’t hit his stride again, the board needed to figure out what to do. It wasn’t clear that Andy was disabled, so he probably couldn’t qualify for disability insurance. And the opportunity for an important joint


David A. Bjork

venture meant that the board needed to

step into the breach. While it didn’t work out quite the way it was meant to when the plan was developed, a good succession plan helped.

Western HealthCare was a $1 billion business, with the lives of thousand of patients and the livelihoods of 5,000 employees and 800 physicians at stake. The crisis came at a difficult time for one of the biggest health systems in the West.

The 55-year-old CEO of Western HealthCare didn’t seem focused on

getting the deals done. The system had an opportunity to forge a closer relationship with the local medical school. It was negotiating a merger with the largest multi-specialty group practice in the area. And it was developing a new heart hospital with its cardiologists.

The board didn’t know what to do. It wasn’t ready to fire Andy; it couldn’t even agree whether his lack of focus was a lingering effect of the stroke. Some directors thought he was getting better and wanted to wait to see if he returned to normal. Others felt that they couldn’t afford to wait, given the urgent need to settle the three impending deals.

Andy couldn’t see that there was a problem. He didn’t think he was still suffering from the stroke. He’d come back to work several months ago and thought he was handling everything fine. And he’d just gotten a vote of confidence from the board when they extended his contract for another three years.

Dicult Decisions

There was a succession plan in place, but the board was having difficulty making a decision. The plan called for naming 42-year-old COO Sue Jensen the interim CEO, at least, if not actually giving her the job on a

permanent basis. She had 5 years’ experience as COO and was well regarded by the board and, for the most part, the medical staff. Andy had been increasing her responsibilities steadily over the years and had been giving her opportunities to develop her leadership skills for as long as they had been working together.

The difficulty was figuring out whether or when to pull the trigger.

The board suspected Andy wouldn’t qualify for disability insurance, and felt it wasn’t fair to terminate him without adequate income, given his stellar record leading the system for 15 years. Under Andy’s leadership, the system’s hospitals had won numerous awards and become one of the largest and most-respected health systems in the country. The severance policy would cover three years, but there would be a gap of four years before his SERP would begin paying retirement benefits.

The board hired outside experts to help identify alternatives and decide how to proceed. Consultants interviewed board members and Andy. They found that Andy wasn’t willing to file a claim for disability or publicly admit that anything was wrong. The board had five choices: do nothing, wait and see, get Sue to quietly take on more responsibility, get board leaders to take on more responsibility, or make a change then and there.

Transition Time

The board settled on a combination of the last three. It asked Sue to take on much of the CEO’s leadership responsibility; several directors agreed

Boardroom Brieng: Business Continuity and Disaster Recovery

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